Does turbox tax do wrong on 20% QBI deduction on rental real estate?

[manbeing]

In TurboTax, it just simply says that "if rental or royalty activity is based in the U.S. and carried on with regularity, continuity and a profit motive, then income from this activity is considered QBI", after I clicked 'Yes, this income is QBI', TurboxTax applied 20% deduction on my rental income.

However, according to the Notice 2019-07 119A, to qualify the 20% QBI on rental income, landlords must also be at least 250 hours of total documented 'rental services' activity performed, Turbotax never mentioned about it or alerted me on these 250 hours. Is TurboTax doing it right?

[BarbaraW22]

Yes, this is correct. Per IRS Notice 2019-07, "if an enterprise fails to satisfy the requirements of this safe harbor, the rental real estate enterprise may still be treated as a trade or business for purposes of section 199A if the enterprise otherwise meets the definition of trade or business."

For additional information please refer to this TurboTax Help Article.

[manbeing]

@BarbaraW22  Thanks for your reply, so when Turbotax attempts to apply QBI deductions on the rental properties. it doesn't apply/consider safe harbor (Notice 2019-07), and  I noticed there are another options available per IRS. which one does TurboTax implement?

https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-provision-11011-section-199a-qualified-business-i...

Q48. When is rental real estate treated as a trade or business for purposes of determining the QBI deduction?

A48. Rental real estate is treated as a trade or business for purposes of the QBI deduction under section 199A if it meets any of the following three tests:

1. The rental real estate rises to the level of a section 162 trade or business.
2. The rental real estate is a rental real estate enterprise meeting the requirements of the safe harbor provided in Revenue Procedure 2019-38. See Q49.
3. The rental or licensing of property is to a commonly controlled trade or business operated by an individual or a passthrough entity as described in Treas. Reg. § 1.199A-1(b)(14). This is often referred to as a self-rental.

[ThomasM125]

The regulations regarding the QBI deduction are relatively new and as such there is some disagreement as to how they are to be interpreted.

As with many tax regulations, it is not practical or possible to list all of the qualifications necessary to comply, giving the format constraints of tax preparation software. Also, it is not practical or possible to inform you of every possible interpretation of the tax laws.

TurboTax guarantees the accuracy of our calculations, so I would suggest you apply a literal interpretation to the instructions in the program. At the same time, you are free to make your own determination, since after all, it is your tax return. 

[manbeing]

@ThomasM125   thanks for your reply.

Are you saying as long as Turbotax is able to apply 20% QBI deduction on my rental income, I should take it as Turbotax guarantee its 100% accuracy?

[ThomasM125]

If you follow the instructions, then the guarantee will apply.